Analysis of Politics, Philosophy and Economics from a Marxist Perspective

Saturday, 30 April 2016

Capital III, Chapter 33 - Part 2

But, also money in circulation moves faster or slower, depending on the extent and speed of economic activity. Credit facilitates both.

“A single piece of money, for instance, can effect only five moves, and remains longer in the hands of each individual as mere medium of circulation without credit mediating — when A, its original owner, buys from B, B from C, C from D, D from E, and E from F, that is, when its transition from one hand to another is due only to actual purchases and sales. But when B deposits the money received in payment from A with his banker and the latter uses it in discounting bills of exchange for C, C in turn buys from D, D deposits it with his banker and the latter lends it to E, who buys from F, then even its velocity as mere medium of circulation (means of purchase) is effected by several credit operations: B's depositing with his banker and the latter's discounting for C, D's depositing with his banker, and the latter's discounting for E; in other words through four credit operations. Without these credit operations, the same piece of money would not have performed five purchases successively in the given period of time.” (p 521)

As described previously, a banknote of £100, deposited in bank X, can create additional deposits at bank X and other banks. Bank X uses the £100 to discount bills, or make loans, and the recipients of this money, or money-capital, use their receipts to make deposits into their own accounts, which are then used by the banks to make further loans etc. which create further deposits, and so on.

“We have already demonstrated in the discussion of simple money circulation (Vol I, Ch. III, 2) that the mass of actual circulating money, assuming the velocity of circulation and economy of payments as given, is determined by the prices of commodities and the quantity of transactions. The same law governs the circulation of notes.” (p 522)

This is not entirely correct, as Marx describes in A Contribution To The Critique of Political Economy, because paper money tokens, or bank notes, can be printed in excess of the actual money they represent. Marx is correct that the laws which determine how much money is required also govern, thereby, the amount of money, represented by those tokens, is required. The difference, as Marx describes, in A Contribution To The Critique of Political Economy, is that if too much money is put into circulation, as gold or silver, it becomes hoarded and turned into bullion etc, and so drops out of circulation. But, paper money tokens have no actual value. They cannot be converted into bullion, or resume their commodity form. They continue to circulate, and become thereby devalued.

Marx provides a table showing the quantity of bank notes of various denominations that were in circulation between 1844-57.

"On the 8th June 1854, the private bankers of London admitted the joint-stock banks to the arrangements of the clearing house, and shortly afterwards the final clearing was adjusted in the Bank of England. The daily clearances are now effected by transfers in the accounts which the several banks keep in that establishment. In consequence of the adoption of this system, the large notes which the bankers formerly employed for the purpose of adjusting their accounts are no longer necessary." (B. A. 1858, p. V.)” (p 523)

About Me

Left school at 16. Became an ASTMS shop steward at 19, and a lifelong trade union activist. Delegate to North Staffs Trades Council 1974-87. Secretary North Staffs Miners Support Committee 1984-5. President North Staffs Trades Council 1985-6 and 1986-7. Delegate to Staffordshire Association of Trades Councils 1985-7. Delegate West Midlands Regional Council of the TUC 1985-7. Secretary Newcastle UNISON 2000-2.
Member of the International Communist League/Workers Socialist League 1974-87.
Went to University as mature student at age of 24. Obtained Joint Honours Degree in Economics and Politics with Philosophy and Statistics, followed by a Post Graduate Certificate in Education.
Labour Party member since 1974. Stoke City Councillor 1983-4, expelled from Labour group 1983, and resigned from Council in 1984 because of refusing to vote for rent and rate rises, and budget cuts. Staffordshire County Councillor 1997-2005.
Assistant Secretary Stoke District Labour Party 1981, and held pretty much every position from Executive member, to Branch Secretary, and Branch Chair.